Global Economic Issues (Unit 3 Topic 2)
Tariffs - effects on trade and welfare :: interactive model
How to use the interactive model:
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use the sliders (or drag curves) to shift the global supply curve and tariff value
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or press the 'try a scenario' button
Why is this stuff important to know?
When global trade occurs at the point of global allocative efficiency (equilibrium of D and S global), the most units are sold at the lowest price, and maximum consumer surplus is achieved. However domestic producer surplus is less than the levels attainable if only domestic trade takes place.
Tariffs distort markets by imposing an additional cost to consumer who purchase imports. Some additional domestic producer trade may be realised, and the government can also grab some extra revenue. Ultimately however, there is a decrease in trade, and an increase in price.